The previous

column on My Federal Retirement discussed the href="http://www.myfederalretirement.com/public/593.cfm">FERS supplement,

including which employees are eligible to receive it, how it is calculated, and

when it starts and ends. This column discusses both the "earnings test" and the

survivor benefit associated with the retiree annuity supplement.

The survivor benefit is available only to a spouse of either a deceased FERS

annuitant who was currently receiving the annuity supplement at the time of the

annuitant's death or to a spouse of a deceased current employee who would have

been eligible for the retiree annuity supplement.

A FERS annuitant who is employed after retiring may lose some -- or all -- of

the monthly retiree annuity supplement if the annuitant's "earned income"

exceeds the "exempt" amount under what is called the "earnings test". Earned

income includes:

1. salary or wages from a job;

2. self-employment income (net profit) from a business in which the annuitant

   is a sole proprietor; and/or

3. self-employment from a partnership in which the annuitant is a general

   partner and earns a net profit from the partnership.

The "earnings test" applies only to the retiree annuity supplement and not to

the FERS annuity. Also, the "earnings test" does not apply to the retiree

annuitant supplement of a FERS-covered employee who retired before minimum

retirement age (MRA) under the special provisions for law enforcement officials,

firefighters, air traffic controllers and military reserve technicians until

they reach MRA. But at the time these individuals reach MRA, the "earnings test"

takes effect.

The "exempt" amount is the same dollar amount established by the Social

Security Administration (SSA) each year for the purpose of the "earnings test"

that applies to Social Security retirement and disability recipients who are

younger than "full retirement age" and who have earned income. For example,

during 2010 "full retirement age" is age 66. That means any Social Security

recipient receiving monthly benefits and who was born after the year 1944 is

subject to the "earnings test". Note that there is a different "earnings test"

that applies to Social Security recipients during the year in which they become

full retirement age.  

During 2010, the exempt amount for the "earnings test" is $14,160. That means

a FERS annuitant who is also receiving the retiree annuity supplement can have

maximum earned income of $14,160 during calendar year 2010 without losing any of

the retiree annuity supplement to which he or she is entitled to. Each year, SSA

publishes the exempt amount. With the exception of the year 2010, the exempt

amount has increased from the previous year to the next year.

If a FERS annuitant's earnings exceed the exempt amount, then the retiree

annuity supplement will be reduced $1 for every $2 that is earned above that

amount. Earnings for the purpose of the "earnings test" consist of wages for

service performed in the year plus all earnings (net profit) from

self-employment (or a partnership) for the year minus any net loss from

self-employment (or a partnership) for the year.

Any earnings reduction during a year may not exceed the amount of the retiree

annuity supplement payable during that year. For the year immediately following

the first year during which a retiree becomes eligible to receive a retiree

annuity supplement, the annual earnings reduction amount cannot exceed the total

annuity supplement to which the FERS annuitant was entitled in the first year.

Consider the following example:

Elizabeth retired from federal service on July 31, 2009 as a FERS

employee. At the time of her retirement, Elizabeth was 60 years old and she

starting receiving her FERS annuity and retiree annuity supplement checks on

Sept. 1, 2009. Her retiree annuity supplement check is $1,000 per month. Since

her retiree annuity supplement income totaled $4,000 during 2009 (fours months

at $1,000 per month), any reduction of her retiree annuity supplement check

during 2010 for excess earnings cannot exceed $4,000. This is true no matter the

amount of Elizabeth's earned income during the period September 1 through

December 31, 2009.

A reduction in the retiree annuity supplement in a given year is based on

excess earned income in the previous year. The reduction is applied beginning

with the year immediately after the first year during which a retiree becomes

entitled to the retiree annuity supplement (or reached the MRA if the annuitant

was receiving the annuity supplement before the MRA such as a retired law

enforcement official or firefighter). 

The following examples illustrate:

Example 1. Peter retired on December 31, 2008 at age 60 with 20 years of

FERS service. He is eligible for a retiree annuity supplement. His earnings

during the period Feb. 1 (the day Peter receives his first FERS annuity and

retiree annuity supplement checks) through Dec. 31, 2009 are subject to the

"earnings test". If Peter's post-retirement earnings during 2009 exceeded the

2009 amount of $14,160, then his retiree annuity supplement for 2010 will be

reduced.

Example 2. Sue retired at age 52 in 2007 as part of an "early out"

retirement program at her agency. When she retired, she was eligible to receive

the FERS annuity. Her retiree annuity supplement will not start until the month

she becomes MRA, or 56. This will be in March 2010. Sue took another job right

after she retired from federal service. Her "earned income" will affect her

retiree annuity supplement via the "earnings test" starting Jan. 1, 2010. If her

post-retirement earnings exceed the 2010 exempt amount of $14,160, then her

retiree annuity supplement for 2011 will be reduced.

Example 3. Bob retired at age 49 in January 2010 with 25 years of federal

service as a law enforcement official. He started receiving a FERS annuity check

and retiree annuity supplement check starting Feb. 1, 2010. Bob's retiree

annuity supplement check will not be subject to the "earnings test" until Bob

reaches his MRA of age 57 in 2018.

The Office of Personnel Management (OPM) requests that each FERS annuitant

who has reached MRA for a statement of earnings for each year he or she is

eligible to receive the retiree annuity supplement. Earnings must be reported by

retirees on OPM form RI 92-22, Annuity Supplement Earnings Report. This form can

be downloaded from OPM's website at href="http://www.opm.gov">http://www.opm.gov. Please note that the form

currently available for download is dated 2003 and should not be used during

2010. Affected FERS annuitants need to contact OPM and ask what form should be

used to report earned income.

There is one exception to the "earnings test" reduction to the retiree

annuity supplement.  As indicated in the Part I column of this topic, in

the month an annuitant becomes age 62 the retiree annuitant supplement ceases.

If during the year an annuitant becomes age 62, the annuitant earns more than

the exempt amount, then there would be no reduction applied since the annuitant

would not be receiving the annuity supplement in the following calendar year.

The following example illustrates: 

James is a FERS annuitant who turned age 62 during 2008. During 2008,

James earned $58,000 in salary. James' retiree annuity supplement was not

reduced during 2008 because of his excess earnings. This is because James did

not have earned income during 2007. But his retiree annuity supplement also

stopped as of his 62nd birthday which means no retiree annuity supplement during

2009 and beyond.

The retiree annuity supplement is not increased by cost-of-living adjustment

(COLAs). Once it is computed, it does not increase or decrease (except for those

recipients affected by the "earnings test") between the time it starts and the

time it ends when the FERS annuitant becomes age 62.

A surviving spouse may be eligible for both a survivor FERS annuity and a

surviving spousal annuity supplement if a FERS annuitant dies before age 62. To

be eligible for the surviving spousal annuity supplement, the surviving spouse

must be: (1) entitled to a current FERS spousal survivor annuity; (2) under age

60; (3) entitled to a Social Security survivor benefit based on the deceased

annuitant's employment under Social Security; (4) not presently eligible for a

Social Security "mother or father benefit" in the event there is at least one

child younger than age 16 in the care of the surviving parent; and (5) not be

eligible for disability benefits from the deceased spouse.

Note that in the event the surviving spouse is eligible for a Social

Security "mother or father" benefit (because he or she is caring for at least

one child age 16 or younger) failure to apply for that Social Security benefit

will not allow payment of the surviving spousal annuity supplement. Also, the

surviving spouse's earned Social Security benefit is not considered in

determining if he or she is eligible for the surviving spousal annuity

supplement.

In order to give a survivor spousal retiree annuity supplement, the annuitant

must have had at least five years of creditable civilian service and have at

least one full calendar year of civilian service creditable under FERS. Military

service cannot be counted in determining if the annuitant had one full year of

FERS service.

The spousal survivor annuity supplement requires determination of the amount

of an "assumed" CSRS survivor annuity and a hypothetical Social Security

calculation. In general, the surviving spouse will not get less in total

survivor benefits compared to the spouse of a deceased CSRS employee or

annuitant.

The spousal survivor annuity supplement payable is equal to the

lesser of:

• The amount by which the "assumed" CSRS survivor annuity exceeds the FERS

  survivor annuity; or

• The amount of the hypothetical Social Security spousal survivor

  benefit.

The "assumed" CSRS survivor annuity is the amount of annuity to which the

survivor would be entitled under CSRS based on the service of the deceased

annuitant. It is determined:

• As of the day after the date of the annuitant's death;

• As if the survivor had applied for the benefit; and

• As if the service of the deceased annuitant was creditable under

  CSRS.

The following example illustrates the computation of the spousal survivor

supplement annuity:

Jane (age 58) is the surviving spouse of deceased FERS annuitant William

who had 30 years of FERS service. At the time of his death, William's spousal

survivor Social Security benefit for Jane was $18,000 per year. Jane's spousal

FERS annuity is $15,000 per year. William's "equivalent" CSRS annuity would have

been $56,250 and Jane's "assumed" survivor spousal CSRS annuity would be 55

percent of $56,250, or $30,937.50. Since $18,000 is less than $30,937.50, Jane's

surviving spousal retiree annuity supplement is $18,000 per year (subject to

FERS COLAs). Jane's survivor spousal retiree annuity supplement will cease the

month that Jane becomes age 60. Note that Jane's total FERS annual survivor

spousal benefit is $15,000 plus $18,000 or a total of $33,000.

The surviving spousal retiree annuity payment ceases the month in which the

surviving spouse becomes age 60. The spousal annuity supplement is not subject

to an "earnings test" and is increased each year by the amount of the FERS

COLA.

About the Author

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in

Silver Spring, MD. He is a seminar speaker at federal employee retirement

seminars throughout the country for the National Institute of Transition

Planning, Inc. , and an author of numerous publications on federal employee

benefits.